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Guaranteed hedging system?

  • #21
  • Dec 15, 2011 11:59pm Dec 15, 2011 11:59pm
what a waste way to trade
PROFITABLE TRADERS ARE NOT LUCKY BUT ARE WELL PREPARED
  • #22
  • Dec 16, 2011 12:13am Dec 16, 2011 12:13am
Quoting zamanib
what a waste way to trade
i agree with Zamanib... its not that hard to make 30+ pip daily....

so why this pain ?


kader
  • #23
  • Dec 16, 2011 12:34am Dec 16, 2011 12:34am
can someone explane this strategy fully step by step? pls
Georgia
  • #24
  • Dec 16, 2011 12:36am Dec 16, 2011 12:36am
Interesting,

however by definition a straddle will expire worthless if base instrument does not move more than the premium paid offset by the interest this certainly might give you an edge.

Also note that premium is priced in when currency is expected to move... ie before NFP, so if it doesn't your upfront cost won't be justified by the interest alone.

If you buy a far outdated set of options the premium is higher, and the instrument has to move farther, and you have to hope that it doesn't settle within the boundaries of the call/put (premium boundaries), or else your on the hook for the premium and will pay out of your interest...

I'm curious as to the numbers, what options do you take? How much premium do you pay? Net exposure is 0 yes, but your balance is negative to start with isn;t it because of the option premium?

Also curious when the price doesn't move what it may cost you, as this may be the only inherent risk to this strategy.

Jag
  • #25
  • Dec 16, 2011 12:51am Dec 16, 2011 12:51am
plssome explane step by step. what to try it.
Georgia
  • #26
  • Dec 16, 2011 1:49am Dec 16, 2011 1:49am
Quote
You need to use both FOREX and currency options.

Step. 1
1. You have to figure out in which direction (long or short) the FOREX pair gives you positive roll-over interest.

Step. 2
2. Buy (or short if you make interest money in short direction) 100,000 units of Forex pair.

Step. 3
3. Short (long if you are short in step 2) 100,000 units of call and long (Short if you are short in step 2)100,000 units of put options of the same currency.

*The call and put options MUST have the same strike price and expiration date.


Your position...
Bonjour pujolshomerun,

At first, a big "merci" for sharing your strategy with us : it's kind of you.

Could you please tell me if I well understood your statement :

If you are LONG in step 2 : short 100.000 units of a CALL option and buy 100.000 units of PUT option with the same strike price and expiration date of the same currency.

If you are SHORT in step 2 : buy 100.000 units of a CALL option and short 100.000 units of PUT option with the same strike price and expiration date of the same currency.


A) Am I right or did I miss something ?
B) What's the best broker for using currencies forex and currencies options at the same time ?
C) Does your methode involve "carry trade" fees or others fees required to your broker ?
D) Do you open one trade at once or many more ?
E) How many time do you hold your position ?


Thanks for your attention,

Happy trading all,

Angel
  • #27
  • Dec 16, 2011 2:12am Dec 16, 2011 2:12am
Quoting only1kader
its not that hard to make 30+ pip daily....

kader
Really?
  • #28
  • Dec 16, 2011 4:42am Dec 16, 2011 4:42am
do the mt4 brokers here in the u.k, pay interest ? i think not. iam with alpari u.k., but they dont pay any carry interest. does anyone know what the deal is here in the u.k. ?
  • #29
  • Dec 16, 2011 6:20am Dec 16, 2011 6:20am
I trade index and equity options all the time and I admit I'm not familiar with currency options. That said, all options have a premium or time value that decays with time. The time value is calculated based on the market's prediction of volatility of the underlying and the interest rate.

As others have pointed out, the option value does not track precisely especially if expiration is far in the future. This is because delta changes as expiry approaches (gamma). By the time expiry arrives the time value (premium) you paid for the option has decayed (theta). If the underlying price didn't move, the option would be worth less than you paid for it. You'd have to analyze if the interest earned on the underlying is greater than theta took away in your option.

Even if you go deep in the money on your option to increase the delta, you still pay a premium for the option.

There is no free lunch.
You are in a maze of twisty little passages, all alike.
  • #30
  • Dec 16, 2011 8:34am Dec 16, 2011 8:34am
So you're long the underlying hedged with a synthetic short (or vice versa).

As I understand it, you are completely hedged (delta, vega, gamma & theta are all zero), but any carry interest expected on the underlying should be priced into the premiums of the synthetic. Your exposure with this trade is to interest rate changes. You need interest rates paid on your underlying to increase to make money.

Now I'm not an expert on options, I only spent a few minutes reading about it. Somebody who actually knows what they are talking about may visit this thread eventually and put us all straight.
  • #31
  • Dec 16, 2011 10:15am Dec 16, 2011 10:15am
Quoting euclid
Somebody who actually knows what they are talking about may visit this thread eventually and put us all straight.
I just did.

Option pricing is forward-looking. If the market expects a sudden increase in the underlying's volatility, then the price is high ("implied volatility"). With stocks, if there's an upcoming dividend payment, the option price cooks that in as well.

The OP thinks he's found a risk-free way to make money but if he knew anything about options he'd know that the market prices everything in.

There's no free lunch.
You are in a maze of twisty little passages, all alike.
  • #32
  • Dec 16, 2011 1:59pm Dec 16, 2011 1:59pm
Quoting stevegee58
I just did.

Option pricing is forward-looking. If the market expects a sudden increase in the underlying's volatility, then the price is high ("implied volatility"). With stocks, if there's an upcoming dividend payment, the option price cooks that in as well.

The OP thinks he's found a risk-free way to make money but if he knew anything about options he'd know that the market prices everything in.

There's no free lunch.
I think you might be oversimplifying the strategy a bit steve. The straddle will at best win u unlimited and at worsed lose your premium right? Now to offset thr premium paid you collect interes. Please read my post for an explanation of the strategy. I have some questions and thoae should be answered in order to see if it will work. You have no exposure except spread and premium. This may be no different than entering a position with limited risk
  • #33
  • Dec 16, 2011 2:10pm Dec 16, 2011 2:10pm
The math:

1 lot long at 1.0000
straddle paid $150 premium for 1 lot option

anything above 1.0015 or below 0.9985 will have you be at worsed

end of straddle price outcomes(boundary conditions at expiry):

above 1.0015: Win Win long is in profit and straddle is aswell and interest accrued.

below 0.9985: Lose Win you will always be down by premium amount but does interest cover premium? That is the risk

In between the two : Interest must cover premium minus loss if any from spot position.

You have 1/3 chances of riskfree and 1/3 chance of small profit or minor loss and 1/3 chance if minuscal profit and total risked premium loss
  • #34
  • Dec 16, 2011 2:16pm Dec 16, 2011 2:16pm
Sincyour dealing with options you also have chance to exercise early if allowed and take profit if its there. Thats a hidden benefit
  • #35
  • Dec 16, 2011 2:36pm Dec 16, 2011 2:36pm
Quoting sidhujag
The math:

1 lot long at 1.0000
straddle paid $150 premium for 1 lot option

anything above 1.0015 or below 0.9985 will have you be at worsed

end of straddle price outcomes(boundary conditions at expiry):

above 1.0015: Win Win long is in profit and straddle is aswell and interest accrued.

below 0.9985: Lose Win you will always be down by premium amount but does interest cover premium? That is the risk

In between the two : Interest must cover premium minus loss if any from spot position.

You have 1/3 chances of riskfree and 1/3...
You're talking about long underlying + long call + long put.

The OP is talking about long underlying + short call + long put.
  • #36
  • Dec 16, 2011 5:18pm Dec 16, 2011 5:18pm
Quoting euclid
You're talking about long underlying + long call + long put.

The OP is talking about long underlying + short call + long put.
oops sorry ur right. I cant find any risks other than the premiun collected for the call may not be enough to cover for the puts because they are never the same. That difference would need to be made up by interest.
  • #37
  • Edited 7:58pm Dec 16, 2011 7:45pm | Edited 7:58pm
pujolshomerun: Several folks have asked for details on how this works. Why can't you show your tests?
Fx has the benefit of swap interest that stocks do not have.
Maybe it will work.
This looks like a collar to me. Option newbies can look up collar on OCC - Options Clearing Corp (or something).
ps: "good interest everyday" is not a valid answer.
Puts and calls only move the same if they have the same delta, which they basically can not have - at least for very long, unless the underlying does NOT move.
  • #38
  • Dec 17, 2011 4:23am Dec 17, 2011 4:23am
Quoting Kenz987
pujolshomerun: Several folks have asked for details on how this works. Why can't you show your tests?
Fx has the benefit of swap interest that stocks do not have.
Maybe it will work.
This looks like a collar to me. Option newbies can look up collar on OCC - Options Clearing Corp (or something).
ps: "good interest everyday" is not a valid answer.
Puts and calls only move the same if they have the same delta, which they basically can not have - at least for...

yes, some closer explanation would be good. Otherwise we can just close this thread. Why argue whether it does work or not? If he can't post any detailed explanation then it probably is not worth following it.
But he started this thread to tell us about it, so he should be willing to explain it
  • #39
  • Dec 17, 2011 8:57am Dec 17, 2011 8:57am
I suppose this might be the same as dividend paying stocks.
That is, applying a collar to dividend paying stocks.
Buy the stock, sell a call, buy a put.
There are numerous option strategies. The hard part of analyzing any of them is the lack of historical data on the option prices. So they must be run in forward test mode to get the data - very time consuming.
  • #40
  • Dec 17, 2011 1:26pm Dec 17, 2011 1:26pm
I Dont see this as gauranteed at all. In a long collar or short collar will always leave you in negative at current price expiry. This must hold mathematically or else you have a market arbritrage. Think about it if you were net 0 or greater with a collar then you can just buy and flip right away for free profits nevermind the spot position. The OP is on drugs because its not baseball season. Go fetch doggy you wasted all of our time.
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